Continued high earnings 

July 31, 2006, 09:30 CEST

Statoil's net income in the second quarter of 2006 amounted to NOK 9.7 billion, compared to NOK 6.8 billion in the second quarter of 2005. In the first six months of 2006, net income was NOK 20.0 billion compared to NOK 13.5 billion in the first six months of 2005.

"The second quarter is characterised by continued high earnings mainly driven by strong oil markets. Industrially we have delivered important milestones in our international business, a high level of exploration activity and a strong downstream performance," says chief executive Helge Lund.

Mr Lund calls particular attention to the group's achievements relating to the start-up of production on In Amenas in Algeria, lifting of the first Caspian oil cargo via the Baku-Tbilisi-Ceyhan oil pipeline (BTC) at the Turkish port of Ceyhan, and approval by the U.S. Federal Energy Regulatory Commission’s (FERC) of Cove Point terminal expansion in Maryland.

"I am pleased that we're continuing to report high earnings in a competitive market,” says Mr Lund. "It's also encouraging to see that we're making progress towards our goal for health, safety and environmental indicators. The frequency of serious incidents has been halved since 2001.”

The 44% increase in net income from the second quarter of 2005 to the second quarter of 2006 was mainly due to:

• A 33% increase in the average realised oil price measured in NOK

• A 34% increase in natural gas prices measured in NOK

• Improved downstream results; and

• Increased contribution from net financial items.

The increase in income was partly offset by a 3% decrease in oil and gas liftings.



Strong return on average capital employed after tax
Return on average capital employed after tax (ROACE) (1) for the 12 months ended 30 June 2006 was 30.4%, compared to 25.5% for the 12 months ended 30 June 2005. This increase was mainly due to higher oil and gas prices, improved downstream results, as well as an increase in lifting of oil and gas in the period. ROACE is defined as a non-GAAP financial measure*.

Higher earnings per share
In the second quarter of 2006, earnings per share were NOK 4.50 (USD 0.72) compared to NOK 3.12 (USD 0.48) in the second quarter of 2005. For the first six months of 2006, earnings per share were NOK 9.24 (USD 1.49), compared to NOK 6.24 (USD 0.95) for the same period in 2005.

Increased income before financial items, income taxes and minority interest
Income before financial items, income taxes and minority interest in the second quarter of 2006 was NOK 29.8 billion compared to NOK 21.9 billion in the second quarter of 2005. The increase was mainly due to a 33% increase in the average oil price and a 34% increase in gas prices, both measured in NOK, as well as an increase in downstream results of NOK 1.2 billion and an increase in other income of NOK 0.6 billion related to sales and exchanges of assets. The increase in income before financial items, income taxes and minority interest was partly offset by a decrease in oil and gas liftings of 3%.

In the first half of 2006, income before financial items, income taxes and minority interest was NOK 60.8 billion compared to NOK 43.4 billion in the first half of 2005. The increase was mainly due to a 36% increase in the average oil price measured in NOK, a 45% increase in gas prices measured in NOK as well as a NOK 1.1 billion increase in other income related to sales and exchanges of assets. The increases in both the second quarter and first half of 2006 were partly offset by an increase in expenses compared to the same periods in 2005, mainly due to higher activity. Reduced equity in net income of affiliates of NOK 0.5 billion was mainly due to the fact that our ownership share in Borealis was sold in the fourth quarter of 2005.

USGAAP income statement
 
Second quarter
First half
Full year
2006
2005
2006
2005
2005
(in millions)
NOK
NOK
Change
NOK
NOK
Change
NOK
 
Sales
105,295
93,061
13%
213,692
175,709
22%
384,653
Equity in net income of affiliates
136
318
(57%)
223
754
(70%)
1,090
Other income
642
29
2114%
1,175
67
1654%
1,668
 
Total revenues
106,073
93,408
14%
215,090
176,530
22%
387,411
 
Cost of goods sold
60,379
57,385
5%
121,521
105,393
15%
230,721
Operating expenses
7,990
7,092
13%
16,308
14,289
14%
30,243
Selling, general and administrative expenses
1,762
1,684
5%
3,885
3,118
25%
7,189
Depreciation, depletion and amortisation
4,994
4,501
11%
10,385
8,972
16%
20,962
Exploration expenses
1,167
861
36%
2,233
1,385
61%
3,253
 
Total expenses before financial items
76,292
71,523
7%
154,332
133,157
16%
292,368
 
Income before financial items, income taxes and minority interest
29,781
21,885
36%
60,758
43,373
40%
95,043
 
Net financial items
2,567
(819)
413%
4,200
(2,550)
265%
(3,512)
 
Income before income taxes and minority interest
32,348
21,066
54%
64,958
40,823
59%
91,531
 
Income taxes
(22,319)
(14,112)
58%
(44,532)
(26,946)
65%
(60,036)
Minority interest
(280)
(204)
37%
(414)
(354)
17%
(765)
 
Net income
9,749
6,750
44%
20,012
13,523
48%
30,730
 
 
Income before financial items, income taxes and minority interest for the
Second quarter
First half
Full year
segments
2006
2005
2006
2005
2005
(in millions)
NOK
NOK
Change
NOK
NOK
Change
NOK
 
E&P Norway
21,620
17,106
26%
44,870
33,578
34%
74,132
International E&P
2,992
2,236
34%
6,510
3,863
69%
8,364
Natural Gas
2,390
1,117
114%
5,745
2,672
115%
5,901
Manufacturing & Marketing
2,766
1,575
76%
3,993
3,512
14%
7,593
Other
13
(149)
109%
(360)
(252)
(43%)
(947)
 
Income before financial items, income taxes and minority interest
29,781
21,885
36%
60,758
43,373
40%
95,043
 
 
Financial data
 
Second quarter
First half
Full year
2006
2005
2006
2005
2005
NOK
NOK
Change
NOK
NOK
Change
NOK
 
Weighted average number of ordinary shares outstanding
2,165,
208,287
2,165,
828,391
2,165,
262,582
2,165,
929,863
2,165,
740,054
Earnings per share
4.50
3.12
44%
9.24
6.24
48%
14.19
ROACE (last 12 months)
30.4%
25.5%
30.4%
25.5%
27.6%
Cash flows provided by operating activities (billion)
16.8
20.6
(18%)
35.2
39.1
(10%)
56.3
Gross investments (billion)
11.0
21.9
(50%)
20.6
28.6
(28%)
46.2
Net debt to capital employed ratio
11.1%
27.7%
11.1%
27.7%
15.1%
 
 
Operational data
 
Second quarter
First half
Full year
2006
2005
Change
2006
2005
Change
2005
 
Average oil price (USD/bbl)
68.5
50.3
36%
64.5
48.4
33%
53.6
NOK/USD average daily exchange rate
6.23
6.39
(3%)
6.46
6.34
2%
6.45
Average oil price (NOK/bbl)*
427
321
33%
417
307
36%
345
Gas prices (NOK/scm)
1.77
1.32
34%
1.91
1.32
45%
1.45
Refining margin, FCC (USD/boe)*
9.7
8.2
18%
7.8
6.6
18%
7.9
Total oil and gas production (1,000 boe/day)*
1,076
1,128
(5%)
1,156
1,158
0%
1,169
Total oil and gas liftings*
1,104
1,142
(3%)
1,168
1,165
0%
1,166
Production cost (NOK/boe, last 12 months)
24.2
21.7
12%
24.2
21.7
12%
22.3
Production cost normalised (NOK/boe, last 12 months)*
23.7
21.4
11%
23.7
21.4
11%
22.0


* Solely for the convenience of the reader, the figures for the second quarter and first half of 2006 have been translated into US dollars at the rate of NOK 6.2220 to USD 1.00, the Federal Reserve noon buying rate in the City of New York on 30 June 2006.


Reduced oil and gas production
Total oil and gas production in the second quarter of 2006 was 1,076,000 barrels of oil equivalent (boe) per day, compared to 1,128,000 boe per day in the second quarter of 2005. The decrease of 5% was mainly related to expected decline in oil production at mature fields on the NCS, reduced production at Visund due to an unplanned shut-down as well as more down-time at our installations due to maintenance. The decrease in oil and gas production from the NCS was partly offset by increased production from International E&P due to production from new fields. In the first half of 2006 total oil and gas production was 1,156,000 boe per day, compared to 1,158,000 boe per day in the first half of 2005. Production sharing agreement (PSA) effects affected our production both in the second quarter and in the first half of 2006, as described below.

Based on an oil price of USD 60 per barrel in 2006 Statoil's oil and gas production is expected to be in the range of 1,175,000-1,200,000 boe per day in 2006.

Statoil's oil and gas production target for 2007 is based on an average oil price of 30 USD per barrel (bbl) in the period 2005-2007. Based on the actual oil and gas prices, the group's estimated average reduction in entitlement production under PSAs for the first six months of 2006 was 19,000 boe per day*.

Total oil and gas liftings in the second quarter of 2006 were 1,104,000 boe per day, compared to 1,142,000 boe per day in the same period of 2005. This is equivalent to an overlift of 28,000 boe per day in the second quarter of 2006. In the first half of 2006, total oil and gas liftings were 1,168,000 boe per day compared to 1,165,000 boe per day in the corresponding period of 2005.

Increased exploration activity
Exploration expenditure in the second quarter of 2006 was NOK 1.9 billion, compared to NOK 1.3 billion in the second quarter of 2005. In the first half of 2006 the exploration expenditure was NOK 3.5 billion, compared to NOK 2.0 billion in the first half of 2005. The increase in exploration expenditure was mainly due to higher activity and generally more expensive wells.

Exploration expenditure reflects the period's exploration activities. Exploration expenses for the period consist of exploration expenditure adjusted for the period's change in capitalised exploration expenditure. Exploration expenses in the second quarter of 2006 amounted to NOK 1.2 billion, compared to NOK 0.9 billion in the second quarter of 2005. The increase in exploration expenses of NOK 0.3 billion is mainly due to increased exploration activity.

Second quarter
First half
Full year
Exploration
2006
2005
2006
2005
2005
(in millions)
NOK
NOK
Change
NOK
NOK
Change
NOK
 
Exploration expenditure (activity)
1,857
1,284
45%
3,512
2,014
74%
4,337
Expensed, previously capitalised
exploration expenditure
106
105
1%
180
131
37%
158
Capitalised share of current period's exploration activity
(796)
(528)
(51%)
(1,459)
(760)
(92%)
(1,242)
 
Exploration expenses
1,167
861
36%
2,233
1,385
61%
3,253


A total of seven exploration and appraisal wells were completed in the second quarter of 2006, two on the Norwegian Continental Shelf (NCS) and five internationally. Both wells on the NCS are confirmed discoveries. One dry exploration extension on the NCS was also completed in the second quarter of 2006. The number of exploration wells completed in the second quarter of 2005 was four.


In the first half of 2006 a total of 13 exploration and appraisal wells were completed, five on the NCS and eight internationally. Three exploration extension wells were drilled in the same period. Six of the exploration and appraisal wells resulted in discoveries, of which three at the NCS and three internationally. One of the exploration extensions resulted in a discovery.

Production cost per boe was NOK 24.2 for the 12 months ended 30 June 2006, compared to NOK 21.7 for the 12 months ended 30 June 2005*.

Normalised at a NOK/USD exchange rate of 6.00 and adjusted for the estimated volume reduction due to PSA effects, the production cost for the 12 months ended 30 June 2006 was NOK 23.7 per boe, compared to NOK 21.4 per boe for the 12 months ended 30 June 2005*.

The 2007 target for production cost per boe is based on an average oil price of 30 USD per bbl in the period 2005-2007. Based on realised oil and gas prices, the estimated PSA effect on production unit cost for the second quarter of 2006 was NOK 0.18 per boe*.

The production unit cost, both actual and normalised, has increased, mainly due to a higher activity level, increasing industry cost pressure as well as a higher share of international production, which on average has a higher production cost per boe than our production on the NCS.

Net financial items amounted to an income of NOK 2.6 billion in the second quarter of 2006 compared to an expense of NOK 0.8 billion in the second quarter of 2005. Net financial items in the first half of 2006 was an income of NOK 4.2 billion, compared to an expense of NOK 2.6 billion in the first half of 2005.

The positive result was mainly due to currency gains, due to a strengthening of the NOK versus the USD in the second quarter of 2006, compared to currency losses due to weakening of the NOK versus the USD in the second quarter of 2005. Most of the currency effects relate to Statoil's short-term NOK hedging policy and unrealised effects on long-term USD debt.

Exchange rates
30.06.2006
31.03.2006
31.12.2005
30.06.2005
31.03.2005
31.12.2004
 
NOK/USD
6.24
6.58
6.77
6.55
6.33
6.04


Income taxes in the second quarter of 2006 were NOK 22.3 billion, equivalent to a tax rate of 69.0%. Income taxes in the second quarter of 2005 were NOK 14.1 billion, equivalent to a tax rate of 67.0%. The tax rate increased in the second quarter of 2006 compared with the second quarter of 2005 mainly due to the negative effect of tax on net financial items and reduced effect of uplift due to increased income.

For the first half of 2006 income taxes were NOK 44.5 billion, with a corresponding tax rate of 68.6%. In comparison, income taxes in the first half of 2005 were NOK 26.9 billion with a corresponding tax rate of 66.0%. The increased tax rate is mainly due to relatively lower effect of income generated outside the NCS and uplift due to increased income. The uplift reduces the basis on which the tax on the NCS is calculated, and hence the effective tax rate. However, the relative effect of the uplift is reduced by higher oil prices.

Positive development of HSE results
Overall, Statoil's HSE indicators in the second quarter of 2006 showed a positive trend compared to the corresponding period in 2005. The frequency of serious incidents was reduced in the second quarter of 2006 compared to the second quarter of 2005. Since 2001 the frequency of serious incidents has been halved.

Statoil’s goal for health, safety and the environment is zero harm. The group strives to achieve this through the safe behaviour programme, a large-scale safety training programme, and through cooperation with our suppliers and strong involvement by management.

Second quarter
First half
Year
HSE
2006
2005
2006
2005
2005
 
Total recordable injury frequency
5.1
5.4
5.4
5.4
5.1
Serious incident frequency
1.9
2.1
2.0
2.6
2.3
Unintentional oil spills (number)
53
154
137
251
534
Unintentional oil spills (volume, scm)
3
52
16
73
442


* See end notes in the complete quarterly report.


Important events
Recent important events include the following:

  • On 28 May, the filling of the Baku-Tbilisi-Ceyhan (BTC) oil pipeline was completed. The first Statoil cargo was lifted at the port of Ceyhan in the beginning of July.
  • On 15 June, the US Federal Energy Regulatory Commission (FERC) approved the application for expansion of the re-gasification capacity for liquefied natural gas (LNG) at the Dominion Cove Point terminal on the US east coast, where Statoil has a long-term capacity contract.
  • On 23 June, the Algerian In Amenas gas project, which is a joint development with the Algerian state energy company Sonatrach and BP, commenced production.
  • On 21 June Statoil entered into an agreement to sell Statoil Ireland to Topaz, a financial consortium lead by Ion Equity. The sale is expected to provide a gain of approximately NOK 0.6 billion.
  • On 14 June Statoil ASA's corporate assembly elected representatives of the owners and employees to the group's board of directors. Jannik Lindbæk was re-elected as chair and Kaci Kullmann Five was re-elected as deputy chair. Grace Reksten Skaugen, Ingrid Wiik, Knut Åm and Finn Hvistendahl were re-elected as directors and Marit Arnstad was elected as a new director. Lill Heidi Bakkerud and Morten Svaan were re-elected as employee-elected directors, while Claus Clausen was elected as a new employee-elected director.

 

Further information from:

Investor relations
Lars Troen Sørensen, senior vice president investor relations
+ 47 90 64 91 44 (mobile), +47 51 99 77 90 ( office)

Press
Ola Morten Aanestad, vice president public affairs
+47 48 08 02 12 (mobile), +47 51 99 13 77 (office)